Meeke leads Rally Aust with Kiwi Paddon

Tyre choice has been the key as the world's top rally drivers work out the best way to tackle their favourite stage of Rally Australia on the NSW north coast.

With a four-minute gap between the competitors to allow for heavy dust on Saturday's 51km Nambucca stage, New Zealander Hayden Paddon proved he made the right choice, his Hyundai i20 coming home 4.6 seconds ahead of Volkswagen's Andreas Mikkelsen.

He was also fastest on the second stage of the morning (Valla, 8km), putting himself back into podium contention in fifth outright, just 9.3s behind rally leader, Kris Meeke (Citroen).

Paddon was very happy, not only with his smart tyre choice and subsequent results, but also because the Hyundai Motorsport crew had sorted a differential problem that had slowed his charge on day one.

In contrast to the Kiwi, who chose hard tyres, Ireland's Meeke ran with a soft compound and finished the two stages with a 2.3s advantage from overnight leader Jari-Matti Latvala (Volkswagen).

The pair had been 2.6s apart after the first stage, Latvala closing the gap as Meeke did battle with tyres that were severely degraded in the long stage.

As the crews prepare for another run at the two stages, with Valla being run after dark in a first for Rally Australia, the top order includes the defending champion. Sebastien Ogier is third, 3.9s behind the leader, and just 1.6s shy of his Volkswagen teammate.

A noticeable retirement on Saturday morning was Lorenzo Bertelli, heir to the Prada fortune, who was running 10th when he stopped in the first stage with engine problems.

Australia's Scott Pedder, contesting the second-tier WRC2 category this year, had a slow run through the first stage, but recovered to pump out the second quickest WRC2 time and 12th fastest outright in the second stage.

However, he is still the lowest placed of the WRC2 cars, courtesy of Friday's heartache, when he ripped off a front wheel in the opening day's second stage.

Saturday's four stages total 118km. After a further 69kms on Sunday, the rally closes with a ceremonial podium finish in the centre of Coffs Harbour at 3pm (AEST).

If Volkswagen's Ogier continues his strong run, he could wrap up his third straight drivers' championship during his Australian visit, while co-driver Julien Ingrassia and the Volkswagen Motorsport team both aim for their own hat-tricks.